The demographics of developed nations are becoming increasingly dire. I have looked briefly at old age dependency ratios in the past, but I think that as we assess sovereign risk and growth rates it is an opportune time to revisit these stats. It is well known that Japan has a very old population with one retiree being supported by just two working citizens by 2030, but BofA’s research provided some surprising newcomers to the old-age dilemma.
You might ask, “So why should we care?” There are a few very important factors to consider. Population growth creates economic growth. A growing population generally produces a growing economy. An aging population could mean a shrinking economy, but more importantly it means that pension and entitlement systems will be stressed. When you have 2 people supporting 1 retiree, it requires significant taxation to fund which generally leads to lower economic competitiveness. In addition, an older population will invest in a different asset allocation than a young population. Older people will invest in more bonds and less stocks:
So what does this mean from an investment standpoint? It seems to me that India, Malaysia, and the Philippines look like the most attractive places to invest for long-term growth. Great demographics, a poor starting point, and a very educated population: